Opinion: Why China is the Undisputed Global Leader in Mobile Payment

China is truly transforming into a cashless society. Go to Beijing, Shanghai, Guangzhou,
Shenzhen, Hangzhou or any other major cities in the country and you will see how the Chinese are slowly adapting to daily life without cash. Even street performers and beggars are keeping up with the times, accepting donations via mobile payment.

Earlier, a couple Westerners experienced this extremely convenient lifestyle that is truly unique to China, first-hand. Carrying only their smartphones with the Alipay and WeChat Pay apps installed, they were able to buy breakfast, board the High Speed Rail and the subway, visit tourist destinations, shop, and check into a hotel. All these transactions were done without a single piece of banknote.

30 years ago, the majority of the Chinese people are still using food stamps to obtain food. How has China achieved this incredible transition in such a short time, seemingly skipping cash altogether?

Enter QR code, the single most important symbol of China’s highly advanced and ubiquitous mobile payment industry. Despite it being such an integral component of the whole mobile payment service, the QR code is actually not a recent invention. First designed for the automotive industry in Japan more than 20 years ago for the sole purpose of tracking vehicles during manufacturing, the QR code, or Quick Response Code has found new life in China, thanks to its fast readability and greater storage capacity compared to standard barcodes we usually see in supermarkets.

It is a machine-readable matrix barcode that redirects your device to another URL, where the payment occurs, when you scan it. It is actually even easier than swiping a credit card, because of course carrying around a smartphone that can do so many things is always better than carrying around a piece of plastic that serves no other purposes. The QR code is so useful and intuitive that Snapchat has taken a leaf out of WeChat’s and Alipay’s books and introduced QR Snapcodes that open websites.

I have embedded a QR code down here. If your smartphone doesn’t have a QR scanner app already, go download one. There are plenty of them on the app store. Go ahead and try it out!

Alipay and WeChat Pay are virtually the only two industry players in mobile payment. The fight is a brutal one, as the two members of the BAT (Baidu, Alibaba and Tencent) battle it out to be the first choice mobile wallet in the country. Alipay is operated by Ant Financial, a spin-off of Alibaba, which is led by world famous entrepreneur Jack Ma. WeChat Pay, on the other hand, is a payment service offered by WeChat, the most popular messaging app in China, that belongs to Tencent Holdings Limited under the leadership of visionary CEO Ma Huateng.

Both Alipay and WeChat Payment started out as free-of-charge services. However, from March 1 2016, WeChat started charging users a fee of 0.1 percent when they transfer money from the app’s built-in digital wallet to their personal bank account. The charge is levied on withdrawals of more than 1,000 yuan ($153), with the minimum fee per transfer set at 0.1 yuan. A few months later, Alipay quickly followed suit, but instead of 1,000 yuan, it charges for withdrawals of more than 20,000 yuan.

A market study carried out by Analysys shows that in Q4 2016, China’s third-party mobile payment market size reached a remarkable 12.8 trillion yuan, which is a 41.7% month-on-month growth, and a 126% year-on-year growth. Alipay and Tenpay (the payment and billing backend of WeChat payment) alone dominated 90% market share. Alipay derives its strength from e-commerce (Alibaba, Aliexpress and TMall, among others), Yuebao (currently the world’s largest money market fund with 1.43 trillion yuan of assets as of July 2017) and other financial services. WeChat Payment, with its highly popular WeChat red envelope and humongous user base, is equally strong. This stable duopoly in the mobile payment market is unlikely to be challenged in the foreseeable future.

The most direct and obvious benefits of a cashless society include less cash thefts and bank robberies. Mugging will be a thing of the past as neighborhoods become safer and security costs drop. Drug dealers, firearm dealers and corrupt officers will be having a harder time as mobile payments can be tracked more easily compared to cash transactions.

China is racing towards becoming a cashless society and things are surely looking good for the nation with 1.39 billion population. Can the West keep up?

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